Monday, October 22, 2012

The charts below clearly show that the Dow Transport and the Dow Industrial indices continue to exhibit divergent modalities. Since November 2009 the charts indicate that the Industrials have reached higher highs but the Transports have failed this test and have been range bound for nearly all of 2012. The direction and the momentum with which the Trannies break from this range will be most significant. I believe the market is awaiting with trepidation the results of the November presidential election. As we speak the polls are indicating that either candidate can win and this is bringing a fair degree of uncertainty into price action. The major concern is the position of Mr. Romney with regard to Iran given his predisposition to quickly consider war as a policy option. A new Middle Eastern conflagration is the last thing the world economy needs right now but unfortunately he has been boxed in by powerful interests. It is hard to see how he can march himself down the hill of imminent warfare, formal or covert, should the hand of destiny finally fall upon him.

Sunday, October 21, 2012

Friday was the anniversary of the Crash of '87. As I recall it occurred on a 'Black Monday' after a 'Blue Friday' in which the DJIA lost 100 points for the first time I believe. The markets were wobbly.

It is hard to remember exactly what happened in the market that day except in the retrospect in which I have studied it in detail. But I remember vividly how I heard about what was happening that day.

Saturday, October 20, 2012

You probably expected a much more dramatic title, but there's nothing bad going on here. The market is barely down off the recent highs, so a pullback of a few percent doesn't mean very much. Things look worse than they really are off the top. That doesn't mean things aren't about to get worse as they probably are to some degree, but it's important to make the distinction between something being bearish or just pulling back to unwind things. If you're wondering what I'm talking about, look at the charts folks. S&P 500 is 3% off the top. That's it. Yes, the Nasdaq 100 is leading down, but the majority of the market is hardly down enough worth talking about off the recent highs. We got very overbought for a long period of time. We had sentiment getting stretched out. Nearly 30% spread in the bull-bear war, now in the teens. But the numbers were up there on everything from sentiment to just about every last oscillators.

Friday, October 19, 2012

With the US stock markets near major multi-year highs, traders are naturally very optimistic. Predictions abound for a continuing advance to new all-time highs. But behind this happy facade, the secular picture is actually quite bearish. The powerful stock bull of recent years appears to be topping in recent months. This means the odds are ballooning that a new bear market is being born or soon will be.

Few, if any, things are more important for stock investors to understand than the bull-bear cycles. They can only be ignored at great peril. Investors who refuse to study them inevitably end up buying stocks at the wrong times in these cycles. And that derails their wealth-building progress for many years. For example, today the US stock markets remain lower than they were in March 2000 over 12 years ago!

Friday, October 19, 2012

NDX has crossed its Crash Trigger at 2760 and is about to exceed its prior low. That means the crash or panic starts here with the NDX. The bears have been so beaten up that there aren’t any left, well, hardly anyone. Everyone has a bullish count for the market but virtually no one is aware of the implications of the Broadening Formations. Well, this one is triggered.

However we all know that even with traditional EW analysis of ABC etc that can change fast!. Those of you who are familiar with EW replace each colour scale -2 with a b and you will clearly see the nesting of b's! Not good coming off a high!

Thursday, October 18, 2012

As we have moved toward the election I have continued to hear talk that one candidate would be better for the market than the other. I have also heard that the current administration is responsible for the market advance since 2009. To say this and/or that this administration would therefore be good for the future of the market is like saying that we have had more sunny days since 2009 and that if the current administration is reelected then we will have more sunny days over the next 4 years.

Thursday, October 18, 2012

For anyone who's been paying attention for the last two years – that's usually not a good thing and, as we noted yesterday, it was a strong Euro and a weak Dollar that was driving our little rally. The Dollar bottomed out at 79 and the Euro topped out at $1.314 and the Euro's strength sent the Yen back up to 79.30 to the Dollar (weaker) and that led to a 2% Nikkei rally last night. As you can see from the chart on the right, the S&P for the week is 1% behind UK and Germany and 2.5% behind France and Italy (+4%) and Spain (+7%) – so we have a lot of catching up to do if this rally is real and sustainable.

In a talk before a Harvard Club audience, Fisher presented a candid assessment about all the levers the Fed has been pulling in the aftermath of the 2008 financial crisis. And that includes the recently announced QE3.

Thursday, October 18, 2012

I have spoken often about looking for signs about what type of market we're in. One clue is to watch how the market handles bad news that comes from just about anywhere, especially earnings. We had a disaster last night in two key places from the world of technology. International Business Machines Corp. (IBM) and Intel Corporation (INTC), two major market leaders and economic indicators, both said things were eroding. Not good news to be sure.

Wednesday, October 17, 2012

Keith Fitz-Gerald writes:
They're baaaaack. While the Chinese are busy grabbing all of the headlines, it's really the Japanese who are making the biggest moves.

So far this year, they've very quietly spent $101 billion on overseas acquisitions in a global buying spree that now dwarfs the one undertaken in the late 1980s and early 1990s according to Edward Jones of Dealogic.

Wednesday, October 17, 2012

Some competent analysts claim the United States and Western nations are stuck in the eye of the hurricane. Maybe so, but the internal stresses are so great that they will move beyond the eye into a zone of clearly apparent destruction soon. Some aware analysts believe the bond monetization plans will lift the financial markets. Maybe so, but the ensuing and continuing damage to the economies is profound from rising cost structures. Some awakening analysts no longer look to the USFed as a source of solutions. They see the central bank as increasingly desperate, pushing the same levers that accomplished nothing in the past.

Wednesday, October 17, 2012

The frightening prospects from a derivative meltdown, well known for years, seem to deepen with every measure to prop up a failing international financial system. The essay Greed is Good, but Derivatives are Better, characterizes the gamble game in this fashion:

"The elegance of derivatives is that the rules that defy nature are not involved in intangible swaps. The basic value in the payment from the risk is always dumped on the back of the taxpayer. Ponzi schemes are legal when government croupiers spin loaded balls on their fudged roulette tables."

Monday, October 15, 2012

The markets roared from June to September, ever Fed mouthpiece Jon Hilsenrath of the WSJ penned an article calling for more QE in June. Fast-forward to mid-September and the Fed did indeed announce QE3, a plan that will see the Fed monetize $40 billion worth of Mortgage Backed Securities in addition to its plans to Twist $45 billion worth of Treasuries per month: a total monetization scheme of $85 billion.

Monday, October 15, 2012

SPX is making a final bounce from its 50-day moving average at 1429.27 before reversing down toward mid-Cycle support at 1377.06. Intermediate-term resistance is at 1439.44, but it’s a toss-up whether SPX will get that far. The trend is still down, but the panic does not begin until it is below the 50-day moving average again.

Monday, October 15, 2012

Shah Gilani writes:
According to high-frequency traders and their backers, the super-fast, computer-driven stock trading desks that employ HFT are a benefit to investors and exchanges here in the U.S. and wherever they ply their trades.

But that's not true.

In fact, if you know exactly what high-frequency traders actually do and how they do it, you'll know what the SEC hasn't figured out, namely what caused the May 2010 Flash Crash.

Monday, October 15, 2012

Last Monday GoldMoney published my article showing the frightening growth in money-quantities for the US dollar. In that article I stated that the hyperbolic rate of increase, if the established trend is maintained, is now running at over $300bn monthly, while the Federal Reserve is officially expanding money at only $85bn.

Monday, October 15, 2012

Traditionally, when economies expanded stocks outperformed bonds; but these aren’t traditional times and although economies have expanded, over the past 30 years bonds have outperformed stocks.

Since 1981 the return on long-term government bonds averaged 11.5 %. The S&P stock index averaged 10.8 %; and, since 2000, the returns of stocks over bonds have widened. A major reason why bonds have done better is that since 1982 government bond yields have been declining; and when bond yields decline, bond profits rise.

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